To Build a Circle of Trust, Explain to Employees Why Conflicts of Interest Matter
It is a good strategy to remind your internal client groups from time to time where to find company policies and why they exist in the first place. One policy that deserves the spotlight is your Conflicts of Interest (COI) policy because it requests employees to disclose details about their personal activities, relationships, and investments. Employees deserve an up-front explanation about why the company cares about conflicts. Your explanation will help build trust that encourages employees to disclose potential COI. It is not enough to simply say, as your COI policy likely does, that an employee’s personal interests should not conflict with the company’s interests and how to report potential COI situations. To help employees understand why the company cares about understanding and resolving COI, consider using these talking points and examples:
Objective Decision-Making: Employees with COI may make biased decisions influenced by their personal motivations that could harm the company’s business or waste resources. For example, an employee who owns a stake in, or has a relative employed by a vendor company, may be inclined to direct business to that vendor, even if it is not the most cost-effective choice for the employee’s company.
Company Reputation: COI can lead to decisions that prioritize personal gain over the company's welfare and could harm the company's reputation and integrity. There is a slippery slope from COI to fraud. Companies which rely on their reputation for integrity as a selling point to clients – such as accounting, law, consulting and other services industries – can be particularly damaged by employee self-dealing that is publicly exposed.
Legal Concerns: Certain COI may violate laws or regulations, leading to legal consequences, fines, or sanctions. By identifying conflicts early, a company can take steps to mitigate risks and ensure compliance with applicable regulations. As an example, consider “insider trading” in which an employee with access to material non-public information about a company – perhaps your company or a business partner – uses that information to trade stocks for a profit. In that situation, the employee is using confidential information for his personal gain rather than in the best interest of the firm or its clients. Insider trading violates securities laws and can result in fines, criminal charges, and even imprisonment for the wrongdoer(s) as well as litigation and reputational damage to the company.
IP Leakage: Employees in tech and creative industries with COI can damage the IP portfolio of their employer. For example, employees can be so enthusiastic about their usual work – such as coding, building tools, designing meta environments, etc. – that they engage in similar work outside of office hours, alone or with others, putting the company’s intellectual property at risk if used. Losing IP in this fashion is like letting the genie out of the bottle; there is no getting it back in.
Transparency Builds Trust: Disclosing and addressing COI promotes transparency, fostering trust among employees and stakeholders. When conflicts are managed appropriately, it demonstrates a commitment both by employees and the company to ethical practices and accountability. Addressing COI helps establish a culture of fairness and integrity, where employees are encouraged to act in the company’s best interests. This contributes to higher morale and a more cohesive workplace since employees feel confident that their colleagues are operating ethically.
Compliance officers have at least 3 opportunities to broadly communicate these ‘whys’ of the COI policy to employees on a regularized basis: (i) within online courses and in-person training about COI; (ii) on the first page or two of your company’s COI Policy; and (iii) in the introduction to any COI questionnaires your team requires new employees or existing employees to complete.
Your Human Resources team also can act as a communications partner. It is likely that HR already helps your Compliance team to surface and resolve COI. Fully deputize HR by offering training so they feel confident to explain to employees why resolving COI is important to the company and to help maintain a culture that is built upon employees’ mutual trust and respect.
General Counsel